Energy Alert

New York’s State Assembly has passed a two-year moratorium on high volume hydraulic fracturing (fracking or HVHF) in the state.

The bill passed the Democratic-controlled Assembly by a wide margin (95-40) and, if also passed by the Senate and signed by Governor Andrew Cuomo, would prevent natural gas production utilizing HVHF in New York’s portion of the Marcellus Shale until May 15, 2015.

In addition, the Assembly’s bill would require the State University of New York to conduct an independent, comprehensive review of HVHF, and fracking in New York would be delayed even longer if that review is not completed by May 2015. The Assembly’s moratorium, in concert with other political factors, casts very serious doubt for the prospects of any shale gas production in New York for the foreseeable future.

While the Assembly passed similar moratoria on HVHF in 2010 and 2011, those bills went nowhere in the then-Republican-controlled Senate. However, the Senate is now controlled pursuant to a power-sharing arrangement between the 31-member Republican caucus and the five-member Independent Democratic Caucus (IDC), with the 27-member Democratic caucus comprising the minority. On the day before the Assembly passed its two-year moratorium on HVHF, the five members of the IDC proposed their own two-year moratorium.

“We have to put science first. We have to put the health of New Yorkers first,” Senator David Carlucci (IDC-38) told the AP.

Mr. Carlucci stated he was confident that the IDC bill would make it to the floor despite the need for Republican Majority Leader Dean Skelos to allow it. A decision by Mr. Skelos allowing a floor vote on the IDC-backed moratorium bill could lead to a direct conflict between Mr. Skelos and his own deputy leader, Senator Tom Libous, a committed fracking advocate. Doubtless Mr. Skelos is concerned that failure to allow a floor vote on the IDC-backed moratorium could jeopardize the Republicans’ current controlling coalition with the IDC, thus driving the IDC to combine with the Democrats to seize control of the Senate. Accordingly, a Senate floor vote on the HVHF moratorium appears quite possible, and such a bill could pass with no Republican support if all 27 Democrats joined the five-member IDC in voting for it.

It is unclear how Governor Cuomo would react to such a scenario, and his predecessor, former Governor David Patterson, vetoed a much shorter fracking moratorium bill in December 2010. The Cuomo administration’s own review of fracking is currently stalled, as the Department of Environmental Conservation is still awaiting the New York State Commissioner of Health, Dr. Nirav Shah, to complete a health impact study before NYSDEC takes final action on the proposed HVHF regulations. The oft-delayed regulatory review process in New York has already resulted in what is tantamount to an ongoing five-year moratorium on HVHF.

Progress in Illinois

The political machinations and stalled regulatory review in New York contrasted last week with developments in Illinois, where, after years of clashing over HVHF, the energy industry and environmentalists completed a negotiated process of working together to draft regulations that both sides could live with.

After an attempt to enact a fracking moratorium failed in Illinois last year, the Natural Resources Defense Council concluded that HVHF in that state was a fait accompli. Consequently, the NRDC switched to attempting to ensure significant safeguards, including making drillers liable for water pollution, requiring them to disclose the chemicals used and enabling residents to sue for damages.

“One of the positive things here has been the table to which a wide range of interests have come… to address the risks in an adult way,” said Henry Henderson, director of the NRDC’s Midwest office. “We have gotten over the frustrating chasm of ‘Are you for the environment or for the economy?’ That is an empty staring contest.”

The negotiations in Illinois, which took place over five months, were led by state Rep. John Bradley, a Democrat representing an area where fracking would occur. Mr. Bradley whittled negotiators down to a core group – four from industry, four from environmental groups, plus representatives of the state attorney general, the governor, regulatory agencies and legislators.

The prospect for HVHF in New York

The prospect for HVHF occurring in New York State continues to involve a complex interplay of legal, technical, and policy considerations and advocacy by various groups of stakeholders. However, recent legislative developments clearly are not a positive sign for those planning to take part in shale gas production utilizing HVHF in New York State anytime soon. DLA Piper will continue to serve as an active participant in the legal, regulatory, technical and policy landscape associated with HVHF and shale gas production in New York State and internationally.

This client alert is part of an ongoing series by DLA Piper lawyers on the legal, regulatory and policy issues related to hydraulic fracturing and shale gas production in New York State and internationally. Read our library of writings on this issue here.

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DLA Piper is a global law firm with lawyers located in more than 40 countries throughout the Americas, Europe, the Middle East, Africa and Asia Pacific, positioning us to help clients with their legal needs around the world.